Housing market obliterated

[D H]

Again, this has nothing to do with regulating the prices of homes homes. It has to do with regulating mortgage lenders. Deregulating mortgage lenders (allowing subprime mortgages to be issued by corporations) resulted in ...

 

Bascule, do you know who promulgated this deregulation you are talking about, and when it was done? Do some research, you will be surprised. (Hint: "I Love Rock N' Roll" was one of the top songs of the time.)

 

They owe $120,000 due to changes in the market caused entirely by external factors, in this case poorly thought out policy changes.

 

The policy changes happened a long time ago. The housing collapse is a slow build-up of ever-escalating prices, greed, and irresponsibility. While predatory lenders certainly bear some responsibility, I also blame the "average citizen". It is their greed and their fiscal irresponsibility that made them easy prey for the predatory lenders. The housing market collapse is just a modern version of tulipomania.

[bascule]

Ok we're on the same page, but this is just the wrong reason to buy the book, IMO. How is that any different from blowing the family's savings at a craps table in Vegas?

 

A home is typically a substantially safer investment than a craps table. For the past 30 years it's been one of the safest investments you could make.

 

If we assume for the sake of argument that they weren't treated fraudulently by their realtor (which would be a matter for legal action, I would agree), didn't they go into it with their eyes open?

 

They needed to move, and the market happened to tank at the same time this happened.

 

We can close loopholes that are bad for society.

 

Bingo

 

But is this going to be a free country, with people freely able to choose their fates, or is it not?

 

Yes

 

That's a *real simple* question in my mind. If the answer that question is "yes", then motivations like the above should never come into play when deciding policy. Not ever.

 

So anything but Laissez-Faire capitalism means the country isn't free?

[bascule]

Bascule, do you know who promulgated this deregulation you are talking about

 

The deregulation I'm talking about applies specifically to mortgage lenders.

 

The Senate Committee on Banking, Housing, and Urban Affairs

 

and when it was done?

 

Over the course of the past decade

 

Do some research, you will be surprised. (Hint: "I Love Rock N' Roll" was one of the top songs of the time.)

 

Hint: Not all types of deregulation are the same.

 

The policy changes happened a long time ago.

 

No, they didn't:

 

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/03/17/the_dangers_of_deregulation/

 

The housing collapse is a slow build-up of ever-escalating prices, greed, and irresponsibility.

 

That's not what any financial analysis of this situation that I've read has said. Everyone is pinning the problem squarely on subprime loans.

 

While predatory lenders certainly bear some responsibility, I also blame the "average citizen". It is their greed and their fiscal irresponsibility that made them easy prey for the predatory lenders. The housing market collapse is just a modern version of tulipomania.

 

The predatory lenders saw a $1.3 trillion subprime lending industry collapse due to their collective action. Was that the "average citizen's" fault, or their fault for creating an unsustainable business model that ultimately blew up in their faces and in turn brought down the housing market as a whole?

 

In this case, isn't regulation warranted?

 

Can someone respond to this with something other than a slippery slope argument? Regulating the types of loans mortgage lenders can issue (e.g. limiting the number of subprime loans they're allowed to issue) is not some slippery slope towards the fixing of home prices by government or the abolition of freedom.

[ParanoiA]

Can someone respond to this with something other than a slippery slope argument? Regulating the types of loans mortgage lenders can issue (e.g. limiting the number of subprime loans they're allowed to issue) is not some slippery slope towards the fixing of home prices by government or the abolition of freedom.

 

If the mortgage lenders and irresponsible home buyers are commiting the crime and doing the time, then why do we need to step in? Limiting the number of sub prime loans is an infringement on freedom. Just like listening in on international communications...or domestic spying. I can even point to an actual loss of freedom with that kind of regulation.

 

I'd rather see a notification requirement type of regulation. Some kind of plain english directive that requires a separate document with bold print "This is a subprime loan with an interest rate that will fluctuate after two years - your payment can go up or down based on this rate."

 

Or, perhaps even better, require folks to qualify for subprime loans at higher interest rates. For example, if they're trying to get a subprime loan at 5%, then require the borrower to qualify for the payments with an interest rate of 7 or 8%. Loans are not done based on monthly payments, so I'm not sure how that would work out. But it would make more sense, to me, for the buyer to have to qualify for the "extreme" payment. That's the payments that get them in trouble and foreclosed.

 

Yes, that would be an infringement on freedom to some extent, but more practical and more sensitive to the actual problem. Subprime loans are not the problem...subprime loans to the wrong people is the problem.

[Pangloss]

LOL! Ok, I tell you what, Bascule, I'll make you a deal: I won't accuse you of trying to bail out everyone who ever takes a loss on their home if you won't accuse me of saying that anything short of Laissez-Faire capitalism makes us not free. Fair enough?

 

Common ground the hard way.... (chuckle)

[D H]

Perhaps Texas does some things right. We have not suffered the housing collapse seen elsewhere. On the flip side, real estate prices have not risen insanely. The two go hand-in-hand.

 

The two primary reasons are the homestead exemption and no income tax. The homestead exemption means homeowners only the holder of the mortgage may force the sale of a home to cover nonpayment of a debt. People can protect their home by making payments on it while declaring bankruptcy on everything else. This has been misused (think Exxon), but it has saved a lot of people, too.

 

Texas has no income tax and no state property tax. While an income tax is illegal in Texas, a property tax is not. The state doesn't give much out to schools and communities. The result: Counties, cities, municipality utility districts, community colleges, public school districts, you name it, all administer property taxes. These high property tax rates militate against escalating real estate values.

 

When lenders do have to foreclose, they tend to sell at a reduced value to get the property off their hands. Because prices aren't escalating, lenders here do give out 0% down mortgages. Those 0% down mortgages have been a big source of the rise and subsequent fall in housing prices.

 

I am not advocating that states use a property tax in lieu of an income tax. Simply replicate the effects seen here. The easiest way to accomplish this is to stop subsidizing those free mortgages. One way to do this: make the mortgage insurance escalate as the financed percentage of the home value increases.

[john5746]

Or, perhaps even better, require folks to qualify for subprime loans at higher interest rates. For example, if they're trying to get a subprime loan at 5%, then require the borrower to qualify for the payments with an interest rate of 7 or 8%. Loans are not done based on monthly payments, so I'm not sure how that would work out. But it would make more sense, to me, for the buyer to have to qualify for the "extreme" payment. That's the payments that get them in trouble and foreclosed.

 

Yes, that would be an infringement on freedom to some extent, but more practical and more sensitive to the actual problem. Subprime loans are not the problem...subprime loans to the wrong people is the problem.

 

I basically agree with this view, I would only add that the problem isn't always "the wrong people". More risky investments will result in more defaults on average. People lose jobs or get lower paying jobs, etc.

 

But making people qualify on the higher rate would help the situation while still allowing more people become home owners, IMO

[bascule]

LOL! Ok, I tell you what, Bascule, I'll make you a deal: I won't accuse you of trying to bail out everyone who ever takes a loss on their home if you won't accuse me of saying that anything short of Laissez-Faire capitalism makes us not free. Fair enough?

 

Cool

 

My point is really that due diligence was not undertaken by Congress and the Federal Reserve in this specific instance.

 

Someone else pointed out to me that the executives of many of these financial companies made quite a bit of money on this whole deal, and it's their shareholders who really lost out.

 

So perhaps I wasn't apt in saying that everyone loses except people like me. It's more like everyone loses except people like me and executives of subprime mortgage lenders.

 

As to whether the sold their stock before the crash, possibly with foreknowledge of the impending doom of their corporations, that's for the SEC to investigate and decide.